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Much like Iran did late last year when it allegedly recruited Manssor Arbabsiar to perform a terrorist act in the U.S., Tehran has been caught plotting an attack with three Egyptian citizens along the Suez Canal.

Issacharoff's sources told him they have no proof of the two men's involvement other than the fact it was reported at all. Israel has been warning that Iran is setting up terrorist cells in Egypt for just such an attack.

"We can see signs that Iran is building a terror infrastructure throughout Sinai," he said. The official added that although Israel has responded to every Egyptian request to beef up its forces in Sinai, no significant Egyptian operation has taken place in Sinai since the Egyptian revolution last year.

"It must be remembered that a host of Palestinian organizations are using Sinai to carry out attacks," the official said, adding that since ousted Libyan leader Muammar Gadhafi's fall, Libya has become a huge arms depot, where weapons are transferred to Egypt and then the Gaza Strip.